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Steel Mills debt liability exceeds Rs82bn

November 09, 2012

View of a Steel mill – File photo courtesy Creative Commons
View of a Steel mill – File photo courtesy Creative Commons

ISLAMABAD: The payable debt liability of Pakistan Steel Mills exceeded Rs82 billion on Oct 31, up from Rs75bn four months ago, even after getting a Rs14.6bn bailout package from the federal government in July this year.

At the same time, capacity utilisation of the country’s largest industrial entity plummeted to a historic low of six per cent in October, down from 21 per cent in July. In fact, the capacity utilisation has maintained a steady decline from a peak of 92 per cent in April 2008.

The average annual capacity utilisation of PSM, which stood at 82 per cent at the end of fiscal year 2007-08, dropped to 64 per cent in 2008-09, 40 per cent in 2009-10, 35 per cent in 2010-11 and 18 per cent in 2011-12, according to papers on the performance of PSM reviewed by a committee led by federal Minister for Production Anwar Ali Cheema this weekend.

The meeting was called to analyse key performance indicators (KPI) of the organisation in the wake of recently issued bailout package of Rs14bn whose first instalment of Rs3.8bn had already been disbursed, said an official statement.

The declining trend in capacity utilisation resulted in proportionately steady increase in PSM’s liabilities.

In 2007-08, when Maj Gen (retd) Mohammad Javed was chairman and CEO of Steel Mill, the organisation earned a profit of Rs2.3bn even though its debt liabilities stood at Rs7bn.

But in 2008-09, when Mueen Aftab Sheikh held the top position in PSM, it suffered a highest-ever loss of Rs26.5bn and its debt liabilities increased to Rs23bn. In 2009-10, the organisation suffered another loss of Rs11.6bn and debt liabilities touched Rs38bn.

It registered a loss of Rs12.4bn in 2010-11 and liabilities increased to Rs53bn. The fiscal year 2011-12 was no different as the organisation suffered a loss of Rs21.4bn and liabilities jumped to Rs75bn.

On the basis of a robust performance in 2007-08, Gen Mohammad Javed was rehired as CEO in May this year on an extraordinary salary of Rs1 million per month, excluding housing, medical, transport and other facilities, to turn around the loss-making entity at a time when its monthly capacity utilisation stood at 15 per cent.

Gen Javed was drawing a monthly salary of Rs195,000 when he was both CEO and chairman of the organisation in 2007-08.

The Economic Coordination Committee (ECC) of the cabinet approved the Rs14.6bn bailout package for PSM on July 24 this year. The package included Rs8.6bn in cash payment with an understanding that it will achieve 63 per cent capacity utilisation by March 2013. Another Rs6bon has already been paid and regularised.

However, PSM’s capacity utilisation dropped to 13 per cent in August. September and October proved to be even worse when the capacity utilisation fell to seven per cent and six per cent, respectively.

Since July this year, the organisation is reported to have suffered a loss of Rs7.2bn. It means PSM has suffered a cumulative loss of more than Rs79bn since 2008-09. The overall payable debt liabilities jumped from Rs7bn in 2008-09 to Rs82bn as of Oct 31.

The government was informed that PSM’s monthly sale had declined from a peak of Rs5.1bn in July 2008 to Rs2.5bn in July last year. It further dropped to Rs956 million in June and to Rs780m in October this year.

The organisation’s annual sale, which was Rs43bn in 2007-08, dropped to Rs34bn in 2009 and to Rs23.8bn in 2010. In 2010-11, its annual sale improved to Rs27bn, but dropped again to Rs16bn in 2011-12.

Gen Javed informed the meeting that after receiving Rs3.8bn, PSM had placed an order for purchasing two ships of raw material in August which would arrive in two months.

Shipments of iron ore and coal to be delivered by a foreign supplier would increase PSM’s production by up to 25 per cent by the end of this month, he said, adding that possibilities were also being explored to arrange domestic raw material from Sindh and Balochistan.

According to the official statement, Production Minister Anwar Ali Cheema had ‘strictly’ directed the PSM chief executive to ensure recovery of losses as early as possible. “We are trying to reach the desired level of 30-40 per cent production by the end of January and up to 70 per cent by the end of 18 months of the already approved bailout package by the president,” he said, adding: “I will not tolerate any lax attitude, corruption or inefficiency.”

The ECC summary, which led to the bailout package, spoke about the mismanagement in PSM and indecisiveness of the cabinet committee on restructuring which accumulated losses as key decision earlier taken were delayed or not implemented.

The Supreme Court is also seized with cases of corruption and mismanagement in PSM.